IFC boss sees opportunity in developing nations

Washington, June 29, 2012

Emerging markets are a major part of the growth story in the world, led by China, but more and more by other countries where the middle-class is evolving, said the chief executive of International Finance Corp (IFC).

New figures released by IFC on Friday show annual its investments at a record $20 billion in the fiscal year ending June 30, marking a nearly threefold from $7 billion in 2006.

In Africa, for example, IFC investments climbed to a record $4 billion in 2012 from around $700 million in 2006.

Former Swedish banker and CEO of IFC Lars Thunell said he is concerned with the growing impact of the euro zone debt crisis on developing countries, especially through a drop in demand and a decline in financial flows.

"It would have been cheaper for the world if politicians in Europe had taken actions 18 months or two years ago. That means people are very cynical and politicians are running after the problem rather than getting ahead of the problem," he said.

Thunell said while Eastern Europe was the region most directly exposed to the euro zone crisis through the banking sector, the crisis is also slowing growth in China, India and Brazil.

Eye on trade

In Africa, countries are having difficulties financing trade deals and have seen a decline in demand for their products, he said. Developing countries rely on letters of credit from banks, many of them in Europe, for trade support.

"The damage is happening all over the place," Thunell said pointing at the raft of credit downgrades of banks. "We're starting to see some real squeeze in the system."

As in the 2009 financial turmoil, Thunell said IFC has a role in responding to the euro zone crisis, especially when banks can no longer finance themselves from the markets.

"There are a lot of unintended consequences for emerging markets and that is where we are trying to step in to fill the gaps when Western banks pull back from emerging markets - whether it's expanding trade finance or whether it's doing more on project finance or whether it's helping with the financing of the sale of subsidiaries of Western banks as they exit certain markets," Thunell added.

With economic strains in developed countries, he said private investors in countries such as Indonesia, Philippines, India and China were focused on meeting demands of a burgeoning middle class through locally-produced goods.

Thunell said there was also a greater push by companies in Asia, especially China, to relocate their factories elsewhere in Asia or even into Africa, where costs are lower. For example, a recent IFC survey found 200 registered Chinese companies in Ethiopia.

IFC has long been known to invest in countries and markets which other investors have shunned as too volatile. Since 2010, IFC has led large government-owned wealth and state pension groups into frontier markets in Africa and elsewhere.

World Bank President Robert Zoellick, who also steps down on Friday at the end of his term, pitched the idea of using money from powerful sovereign wealth funds of Asia and the Middle East in 2008, challenging them to invest 1 percent of their assets in Africa.

IFC is currently managing $4.2 billion for investors including sovereign wealth funds and state pensions funds.

"IFC has had returns in Africa of over 20 percent because we go where nobody else goes," he added. "From the regular businessperson, the opportunities are not the coastal areas of Shanghai anymore; it is the new rising middle class in other countries like Indonesia, Philippines, Colombia and Peru."

In Africa, Thunell sees investment opportunities in Nigeria as well as in regional markets developing in East Africa in agriculture and oil and gas finds in Mozambique, Tanzania and Kenya. – TradeArabia News Service